Morgan Stanley: Walmart+ Subscriptions Down Slightly

The Walmart+ subscriber base remains relatively stable despite ongoing market saturation surrounding subscription video platforms and other direct-to-consumer platforms. New survey data from Morgan Stanley found that the retailer’s membership-based platform maintained a U.S. household penetration of around 16.5%, or 20.8 million members, down slightly from previous user surveys.

Walmart+, which costs $12.95 monthly ($98 yearly), offers subscribers free shipping on select products, local grocery deliveries ($35 minimum order), and free access to the Paramount+ subscription streaming VOD service.

“Our survey’s directional trends are likely accurate and point to continued membership and fee income growth,” analyst Simeon Gutman wrote in a note.

Goldman Sachs contends Walmart is generating upwards of $1 billion in membership fee operating income, up from around $665 million in 2022.

“This is occurring alongside total Walmart+ membership growth, which is continuing — even if the base of actual membership is likely lower than our survey has been suggesting,” Gutman wrote.

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By comparison, Goldman Sachs believes membership competitor Amazon had 168 million Prime members at the end of 2022, down from 170 million members at the end of 2021. Prime includes free access to the Prime Video streaming video service.

Cinemark Gets Wall Street Love as Moviegoers Return to Theaters

Cinemark, the nation’s No. 3 theatrical chain, is getting some Wall Street love after posting a June box office performance that was the chain’s biggest in revenue since the pandemic began.

Citing the release of Paramount Pictures’ Top Gun: Maverick, featuring Tom Cruise in the sequel to his 1986 original, Universal Pictures’s Jurassic World: Dominion, Pixar’s Lightyear and Warner Bros. Pictures’ Elvis biopic, among others, Morgan Stanley media analyst Benjamin Swinburne upgraded the Cinemark’s stock rating to “overweight.” The move sent the chain’s stock up more than 9% in midmorning trading.

“Beginning in late 2021, the North American box office has been trending steadily upward as consumers have become more comfortable with going to theaters,” Swinburne wrote in a note, adding that the return of the frequent moviegoer, which he believes makes up 50% of box office ticket sales, is driving revenue.

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“We have consistently stated that a steady stream of diverse, compelling new film content, along with improving moviegoer sentiment, would be driving forces behind the re-ignition of theatrical exhibition,” Cinemark CEO Sean Gamble said last month.

Swinburne contends the North American box office can pull back about 85% of the pre-pandemic 2019 levels by 2023, with Cinemark maintaining a 14% market share behind Regal Cinema and AMC Theatres.

“Moviegoing has also proven counter-cyclical as a form of inexpensive entertainment, insulating [Cinemark] from a slowing economy,” he wrote.

Netflix CFO: Ad-Supported Content Not on the Table — For Now

On the heels of rival subscription streaming video service Disney+ saying it would roll out a less-expensive ad-supported option this year, Netflix is not joining the growing bandwagon of SVOD platforms adopting ad-supported options.

Speaking March 8 at the Morgan Stanley Technology, Media & Telecom confab, CFO Spence Neumann said he doubted he would a do “show of hands” in favor of Netflix adopting an ad-supported streaming option. At the same time, the executive reiterated that the SVOD pioneer isn’t against the concept either.

“It’s not like we have religion against advertising to be clear,” Neumann said. “I mean, we’re focused on optimizing for long-term revenue, big profit pools. And we want to do it in a way that is a great experience for our members.”

Neumann said Netflix is currently about a $30 billion annual business, up 50% from $20 billion in revenue three years ago without advertising. During that period, the streamer added 28 million subscribers in 2019, 37 million in 2020, and 18 million in 2021.

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Disney announced it would launch an ad-supported Disney+ option as the company eyes at least 230 million to 260 million global subs and direct-to-consumer business segment profitability by 2024. Netflix ended 2021 with 222 million subscribers.

Neumann contends that an ad-supported plan is not in the streamer’s wheelhouse at the moment. Indeed, Netflix added 1.2 million North American subs in the most-recent fiscal period — the service’s strongest domestic sub growth in past three years.

“We think we have a great model in the subscription business,” Neuman said. “It scales globally, really well. Again, never say never, but it’s not in our plan, but other SVODs are learning from it. So, it’s hard for us to kind of ignore that others are doing it, but it now doesn’t make sense for us.”

Netflix’s Greg Peters: We’re Enthusiastic About Shortened Theatrical Window

Netflix has long championed concurrent theatrical/streaming releases of new movies — to the anger of exhibitors and some industry traditionalists. With the pandemic sidelining movie theaters for the past 12 months, studios such as Universal Pictures and Warner Bros. Pictures have aggressively sought to curtail the theatrical window, releasing titles concurrently into consumer homes and retail channels — or just weeks after their box office debut.

Netflix COO/CPO Greg Peters

To Greg Peters, COO/CPO at Netflix, the move is welcomed, confirming the notion that consumers should have a choice in how they watch a movie. Speaking March 2 on the virtual Morgan Stanley Technology, Media and Telecommunications Conference, Peters said many employees at Netflix remain “huge” fans of the theatrical experience.

“It’s great to be in a room with a bunch of people, watch incredible content in a high-quality way,” he said. “But it’s a different experience to be able to watch it at home. The way we think about it, it should be a consumer’s choice.”

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Peters said Netflix management is upbeat about shortening windows, and optimistic the trend will continue post-pandemic.

“We’re enthusiastic to see the shift, and maybe enabling more and more of that for other entertainment [i.e. streaming] options out there,” he said. “It’s what consumers want. It’s hard to buck that trend for too long, and I think that’s eventually where things go.”

Co-CEOs Reed Hastings and Ted Sarandos may be the public faces of Netflix, but it takes a village to operate and grow the platform with more than 200 million subscribers worldwide.

Peters said mining user data across myriad interaction points is increasingly key — in addition to localized content — to driving subscriber growth in foreign countries and markets.

“What’s working and what’s not working … helping us evaluate the features or user interfaces,” Peters said of the data. “Launching service [in a country] is the easiest part of it.” He said the service conducts hundreds of data tests, producing “nice” incremental growth wins.

“We’re starting to get be specific to different user needs,” Peters said.

The executive, who helped launch Netflix Japan and is fluent in five languages, is proud how Netflix has been able to produce localized content in a foreign language and make it popular globally. He cited the success of the French miniseries “Lupin,” starring Omar Sy (The Intouchables) as the famed gentleman thief, which has been streamed by 70 million households. Much of the series’ interest generated by was generated by the streamer’s daily Top 10 ranking.

“Some people in the world, they think about popularity [of a show or movie] as an important signal; they want to be part of that conversation,” Peters said.

He said the streamer’s “Watch Something” option has proved equally successful for viewers uninterested in picking specific content.

“What we’re seeing more and more internationally … when you’re sitting down in front of the TV with three generations in your household, that’s [a challenge],” Peters said.

PVOD’s Brief Moment in the Sun

The novel coronavirus pandemic has given movie studios a taste of something they’ve always wanted: premium video-on-demand, or PVOD.

Long talked about as the antidote to shrinking film profits, PVOD allows consumers to watch big movies at home on the same day as their theatrical release — at a premium price, of course. Three years ago, a Morgan Stanley Research report looked at the viability of PVOD and found “significant upside for film studios,” according to the report’s lead author, Benjamin Swinburne. Swinburne and his team estimated that PVOD could boost studios revenues by as much as $2 billion a year, with hardly any extra costs.

PVOD talk died down a short time later when theater owners made it perfectly clear they were not on board.

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Then came the pandemic. All of a sudden, the country was effectively shut down. The big movie theater chains at first said they would remain open, but sell fewer seats to maintain social distancing. But within days, both AMC and Regal Cinemas, the No. 1 and No. 2 theater chains, went dark.

Productions were halted and, for films already in the can, premieres were canceled and theatrical openings delayed. On March 16, Universal Pictures announced its current theatrical slate would be available for home viewing at a premium rental rate of $19.99 — and that it would release DreamWorks Animation’s Trolls World Tour digitally on the same day as its scheduled theatrical debut, also at $19.99.

Other studios quickly followed suit, smashing the traditional 90-day theatrical window with a wide range of movies — including Disney’s Onward, which was released digitally on March 20, two weeks after its theatrical opening, and Sony Pictures’ Bloodshot, released to home audiences just 11 days after its box office debut.

But now that studios have gotten a taste of PVOD, they have been conspicuously silent about its success — and about its future.

That’s because studios need movie theaters as much as theaters need Hollywood movies. Simply put, one cannot survive without the other — which is why studios are treading carefully with PVOD. As the Morgan Stanley study found, there’s a significant upside to releasing movies early through digital channels. But $2 billion is a fraction of the estimated $22.5 billion studios earned globally from theatrical ticket sales.

Regardless of how well studios do with PVOD during the pandemic, once theaters reopen the genie will be put back into the bottle — with PVOD’s ultimate fate still dependent on theater owners, whose opposition to PVOD stems in large part to the fact that they derive 40% of their profits from concessions.

Studios, however, will have a little more leverage when the crisis is over. In a survey of 1,000 U.S. consumers, Performance Research found that 49% of respondents said it would take “a few months” to “possibly never” for them to return to movie theaters, while just 15% said they intend to frequent movie theaters more often after the pandemic is over. As Variety observed, “the net effect suggests an alarming erosion of theatrical returns that exhibitors and studios alike can ill afford.”

Analyst: Marvel/Disney+ to Help Disney Double Earnings by 2024

Expect an increase in Marvel-related content by Disney across all distribution channels, including the branded $6.99 Disney+ subscription streaming video platform launching on Nov. 12.

The latter strategy could lead to Disney doubling its earnings by 2024, according to Benjamin Swinburne, analyst at Morgan Stanley.

Indeed, Marvel Studios — not Disney — was on major display at the recent San Diego Comic-Con 2019.

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The studio’s panel presentation featured surprise appearances by Oscar winners Natalie Portman and Mahershala Ali touting their separate roles in upcoming movies (Thor: Love and Thunder and Blade) reportedly generated some of the confab’s biggest buzz.

To Swinburne, Marvel’s outsized presence on Disney+ could help double Disney’s stock earnings from $6.50 per share in fiscal 2020 to upwards of $12 per share in 2024.

“For all the complexities of Disney’s business model transition and the stock’s investment case, the durability of its content underpins everything,” Swinburne wrote in a note.

Specifically, the analyst contends Marvel has successfully transcended the narrowly defined superhero genre to mass appeal.

Swinburne cites this year’s theatrical release Avengers: Endgame, last year’s release, Captain Marvel, and pending Disney+ exclusives, “The Falcon and The Winter Soldier,” starring Anthony Mackie, Sebastian Stan and Daniel Brühl; “WandaVision,” featuring Elizabeth Olsen and Paul Bettany; “Loki” with Tom Hiddleston, and “Hawkeye,” starring Jeremy Renner, among others, as proof of Marvel’s expanding impact on Disney investors.

With Disney+ targeting 60 million to 90 million subs globally by 2024, the analyst contends more than 60% of that subscriber base will come from Marvel’s growing worldwide appeal.

“Marvel has broken beyond fanboy demand to mass market,” Swinburne wrote, adding the aforementioned streaming series will “lock in Marvel fans between theatrical releases.”

Morgan Stanley: Netflix Tops in Original Programming

With Netflix spending upwards of $8 billion on original content this year, it might be relieved to know consumers reportedly appreciate the product, according to Morgan Stanley.

The investment bank – and Netflix financial advisor – found that 39% of survey respondents felt Netflix offered superior original programming compared to HBO (14%), Amazon Prime Video (5%), Hulu (4%), Showtime (3%), Starz (2%) and Cinemax (1%).

Morgan Stanley citied Netflix programs such as “Stranger Things,” “House of Cards,” “Black Mirror,” and “Lost in Space,” for driving consumer interest.

HBO hitmakers include “Game of Thrones,” and “Westworld.”

The online survey of 3,100 respondents was conducted in March.